HL Deb 11 July 1939 vol 114 cc50-62

6.40 p.m.

LORD STRABOLGI rose to ask His Majesty's Government, what were the circumstances under which the British directors on the Bank for International Settlements failed to support the French directors in resisting the surrender to the German authorities of the gold held on account of the Czecho-Slovak National Bank by the Bank for International Settlements in London and Switzerland; what representations were made by the French Government to His Majesty's Government on this subject, and what action was taken by His Majesty's Government; and to move for Papers.

The noble Lord said: My Lords, the Question which stands in my name refers to a matter which I think has created great surprise and indeed resentment in the minds of the British public. The act of making available the £10,000,000 worth of gold and credit which stood to the account of the Czecho-Slovak National Bank to that Bank soon after the invasion of Bohemia and Moravia meant that this money was really released for the use of the German Government. I do not think there is any dispute about that fact, and I am sure that the noble Lord who I understand is speaking for the Treasury in this matter would not wish to dispute it. Actually £6,000,000 was held in London in the Bank of England and £4,000,000 in Switzerland, but it was all nominally in the Bank for International Settlements and stood to the credit of the Czecho-Slovak National Bank until that bank fell with other supplies in the German invasion of Czecho-Slovakia. This money, this £10,000,000 worth of good foreign exchange and gold, expended on copper, nickel and other materials represents about £10,000,000 of armaments.

I wish to say a word at this stage about the Bank for International Settlements itself. Your Lordships are aware of the circumstances in which it came into being, its object and what it was intended to do, but I think some attention is required to its executive. The President of the Bank for International Settlements is a distinguished Dutchman, Dr. Beyen, of well-known Nazi sympathies. He is about to relinquish his post to join the great Unilever combine, which has large frozen Reichsmark credits in Germany. The Continental manager of Unilevers in London is a certain Herr Franz Schicht, who plays a prominent part in organising the German Nazis in London. So much for the President. I now come to a distinguished German banker, Herr Hechler, who was formerly the assistant general manager of the Bank for International Settlements. He is known as a protégé of the two English directors of the Bank, Mr. Montagu Norman and Sir Otto Niemeyer. In 1937 the French general manager, M. Quesnay, died, and the English directors insisted on Herr Hechler's appointment to the post in the face of strong opposition from the French directors. I am the last person to blame Herr Hechler, as a German citizen, for doing all he could to have this Czech money made available for his own Government.

It may be argued that the British and French directors on the board are in a minority vis-à-vis the German and the Austrian and other directors who would naturally be expected to vote with them. Certain directors belong to countries which are so under the shadow of the Nazi menace that they can do nothing else. But even so, if the British and French directors are in a theoretical minority, they could always enforce a modification of the Statutes of the Bank by threatening to withdraw their deposits and thus reducing the Bank to insolvency. The power of the British and French directors is therefore very great indeed. That directorate is like the board of a company in which one man is in such a strong position as a shareholder that if he withdraws his support the company comes to an end. That is the exact position there.

I am not going over the events which are in your Lordships' minds; I am trying to fill in some of the gaps in the story which have not appeared in the discussions which have taken place so far in another place. On March 24 the French Ambassador called on the Foreign Secretary, the noble Viscount, Lord Halifax, requesting his influence on the British directors to support their French colleagues in resisting the transfer of this very large sum to Prague. This message, according to my information, was passed on to the Chancellor of the Exchequer, Sir John Simon, who in his turn passed it on to Mr. Norman, the Governor of the Bank of England and also one of the two British directors. As far as I have been able to ascertain, that is just all that happened, except that the money was released to Prague.

Before the matter was ventilated in the House of Commons, efforts were made to keep the whole business secret. Thus on May 15 a member of another place, Mr. Sandys—and I have had no communication with that gentleman on the subject at all—proposed to ask a Question about this anticipated transference of funds, but he was dissuaded by the Financial Secretary to the Treasury from putting it; and then, of course, there was public agitation and the matter had to be ventilated. But efforts were soon made by His Majesty's Government to hush up the whole business.

I understand that the defence is that the directors of the Czech National Bank deposited this money in the Bank for International Settlements, and that when they asked for the money to be transferred to them there was no alternative but to do so. That is the defence: the morals of banking, the ethics of international finance, and so on. The truth is, of course, that the directors of the Czech National Bank were not free agents after the invasion of Czecho-Slovakia, and they were acting under duress. There have been numerous precedents where similar requests have been refused when the people making the request have been known or suspected to have acted under duress. I will quote to your Lordships, if I may, three examples, all well known. The first is that of the Russian deposits held at Barings, the Midland Bank, and other banks in this country. It has always been refused to surrender these deposits, even though the nominal owners requested their return, on the plea that these nominal owners were not free agents in the matter. That situation exists to this day, as far as I am aware.

The second example is that of Martins Bank, which held up £1,250,000 worth of Bank of Spain money at the request of the Burgos authorities during the Spanish Civil War. The reasons given were that the board of directors were believed not to represent the proprietors of the Bank of Spain, and the money was held up. The third example is that of the Austrian deposits in London banks after the Anschluss. Many requests came signed by former Austrian directors of businesses which had been taken over or controlled by the German Nazis, asking for their deposits to be given to them, and the requests were refused on the ground that they were acting under duress, were not free agents. Of course this was exactly the case with regard to Prague.

Now, by the answers made in another place, it appears that the Law Officers of the Crown have argued that the Statutes of the Bank for International Settlements did not compel the British directors to consult His Majesty's Government. That may be so, but The Hague Agreement setting up the Bank for International Settlements was broken by the Germans themselves long ago, when they refused to ratify or carry out the Lausanne Agreement of 1932. That invalidated the whole of the Statutes of the Bank for International Settlements. If that is not held to be a sufficient argument, the Prime Minister himself, and the noble Viscount, the Foreign Secretary, have branded the invasion of Czecho-Slovakia as a gross illegality, and that is accepted by every Party in your Lordships' House. No one has defended that invasion, and in face of that illegality I suggest to your Lordships that it is surely absurd to pretend that the English directors of the Bank for International Settlements could act, so to speak, in a vacuum, without consulting the British Government.

I further suggest that His Majesty's Government had ample warning of what was afoot. I do not think it can be denied that they had warning conveyed to them through the French Ambassador in London, and they should have taken the necessary action but did not do so. Now it may be said: What is the use of seeking to lock the stable door after the horse has been stolen? When a horse has been stolen I think it is a wise policy to find out who left the door unlocked and I repeat, if I may, what I began by stating, that this whole transaction has aroused not only very considerable interest amongst the public but also considerable resentment. I beg to move for Papers.

6.52 p.m.

LORD WARDINGTON

My Lords, the Motion of the noble Lord is concerned with various questions of banking principle and practice, and perhaps it might not be without some use, but might be of some help in the discussion, if I ventured to say just a word from that point of view. There are three points, as I see it, of major importance. The first is involved in the question: Were the Bank of England justified in handing over the gold on the instruction of their customer, the Bank for International Settlements? Whether or not it was known or presumed that this gold was Czech gold, or whether it was handed to Germany direct or via the Bank for International Settlements, in my opinion does not make any difference. The answer must remain: "Yes, they were justified."

This answer is in accordance with the fundamental principles of banking, which are held especially sacred, perhaps, in this country, and the confidence of the public in the integrity of the banks would be rudely shaken if there was any departure from those principles. If they knew it was Czech gold, and I am speaking without any inside knowledge whatever—I am only going on what I may happen to know as a banker, and what I have read of what took place in the other House, and what I have read in the Press—the Bank of England may have disliked exceedingly, if they knew what was the destination of the gold, having to carry out this order, but as a bank I think it was their duty to do as the customer asked them to do, however much it might be against any individual wishes, and however much against political or other views. In the absence of any legal embargo or instructions I feel that the Bank of England were bound to carry out the instructions of the customer.

I do not know whether the noble Lord opposite would accept the application of this general principle to this particular case, but possibly he might be more sympathetic to its application in a different case. I remember that in the General Strike I was asked by a Cabinet Minister whether it would not be desirable, and in the interests of the country, that the banks should refuse to hand over the large sums of money and securities deposited in their hands by the trade unions. This money, it was suggested, was being used against the interests of the country, and it might therefore be the patriotic duty of the banks to refuse to hand that money over. I told my questioner that I thought that that was an impossible thing to ask of the banks, and of course, as a matter of fact, the banks never were asked to do anything of the sort. This was purely a private conversation. The banks without hesitation, even although they may have disliked it and may have believed that the money so released was going to be spent against the interests of the country, released it, because they felt it was their bounden duty to do so.

The second point is: Were the Bank for International Settlements justified in obeying the instructions of their customer, the Czech Bank? I venture to suggest that the answer to that question must be the same as the answer to the first question, in accordance with the same principle. They had, I presume, the written instructions of their customer, and the signatures which they had been authorised to honour were appended to those instructions. The objection is raised that the Bank for International Settlements ought to have known that those signatures were obtained under duress. Whether that was so or not, I cannot say. It is general knowledge, of course, that the whole country was overrun by the Germans, and we all resent the fact that the Germans have got these ill-gotten gains in consequence of their action. But although the country was dominated by the Germans the authorities of the Czech Central Bank apparently would be put in this dilemma: either they had got to carry on and do the best they could under those unfortunate circumstances, or they must resign. They did not resign, they did carry on, and did append their signatures to these instructions, and I contend that the Bank for International Settlements were only doing their duty in honouring those signatures.

Similar problems of the same kind are arising in this country, I believe, to-day. A German Jew refugee, for instance, signs, possibly under compulsion, an irrevocable order to transfer his assets, which are in a bank in this country, to Nazi nominees to whom he gives the order, and then, on his arrival in this country, he may go to the bank where his assets are and say he wishes to revoke that order. My contention, in that case also, is that the bank would not be entitled to accept his revocation and to go back on the order under which he instructed the bank to hand over his assets to a third party and which is presented by that party to the bank. However much sympathy the English bank might have with such a case, I presume the bank would tell him that, before they could do what he suggests, he would have to go to the Court and get the Court to place an injunction on the bank and prevent them from handing the money over.

The third point to which I would like to refer is involved in the question: Ought the English representatives on the Bank for International Settlements to have reported to His Majesty's Government and asked them to intervene; and ought His Majesty's Government to have intervened and to have given an order to the Bank of England, or the representatives of the Bank for International Settlements to disregard the instructions of the Bank for International Settlements to the Bank of England? Before one can answer that question one must look at the constitution of the Bank for International Settlements. As the noble Lord opposite has pointed out, it was formed some years ago by various countries, to be a safe harbour of refuge in times of stress and political anxiety, as well as in ordinary peaceful times. It was to be entirely outside any political interference of any sort. That was an essential part of its constitution. We were pledged to uphold that Article in its constitution, and it seems to me to be quite clear that we should have broken our pledges if we had endeavoured to interfere and bring pressure to bear on the Bank for International Settlements.

A lot has been written and said about control and interference by the State with ordinary central banks. I have in my hand a very interesting and forceful article by a distinguished political economist, who writes: If there is one lesson which recent financial history has taught us, it is that the State can never be trusted not to abuse any power it has over the Central Bank. And he goes on to say: It is no exaggeration to say that three-quarters of the financial dislocation which followed the War was due to the domination of banking and currency systems by Governments. It is scarcely necessary to quote examples—the experience of such countries as Russia, Germany, Austria, Poland, France … speaks for itself. I might also point out that it was the Labour Government which took the responsibility, and accepted the credit, for putting into force the Dawes Plan for the reorganisation of the German financial system, and that one of its cardinal provisions insisted that the new German Bank of Issue was to be entirely free from Governmental control or interference. If this is a sound principle in regard to a central bank, it is all the more sound in regard to an international bank.

It is not merely a question of opinion, to my mind, but it is one of moral integrity. We accuse other nations of breaking their word and departing from their solemn promise for political purposes when it suits them best, and I hope that we are not going to enter into any competition of that sort. In any war of that kind I hope and believe this country would be hopelessly handicapped. Therefore I submit, with all deference, that the Bank of England were right in obeying the instructions of their customer; that the Bank for International Settlements were also right; and that His Majesty's Government were right in keeping their pledge and refusing to interfere with the actions of the Bank for International Settlements.

7.6 p.m.

LORD TEMPLEMORE

My Lords, my noble friend Lord Wardington has dealt very largely with the question of the duties and responsibilities of the Bank of England and the Bank for International Settlements with regard to this matter. It is my duty to state the views of His Majesty's Government as to their duties and responsibilities in this matter, which I agree has roused considerable interest and a certain amount of feeling, both in this House and in another place, as well as in the country.

The noble Lord opposite in the first part of his Question on the Paper, though he did not dwell very much on it, asks what were the circumstances in which the British directors of the Bank for International Settlements failed to support the French directors in resisting the surrender to the German authorities of the gold held on account of the Czecho-Slovak National Bank by the Bank for International Settlements in London and Switzerland. The noble Lord would appear to assume as a fact that the French directors of the Bank for International Settlements resisted the transfer of this gold. I do not know on what information that assumption is based, but if it arises from newspaper reports of a statement made by M. Bonnet to the Foreign Affairs Committee of the French Chamber of Deputies on June 21, then I would observe that according to the report which appeared in The Times of June 22, M. Bonnet's statement was to the effect that the transfer was carried out by the Executive of the Bank and that a protest by the French Government came after the event.

In these circumstances the first part of the noble Lord's Question would appear to be of a hypothetical character. But in any event I would point out, as regards the British directors or members of the Council, that they have no responsibility to His Majesty's Government. The essential feature of the Bank for International Settlements under the arrangements made in 1930 was that it should be a non-political body, and the Chancellor of the Exchequer in another place has explained that the British members of the Council are in no sense representatives of His Majesty's Government.

The noble Lord further asks what representations were made by the French Government to His Majesty's Government on this subject and what action was taken by His Majesty's Government. The reply to this part of the Question is that the French Government towards the end of March expressed the hope that means could be found to prevent the transfer of the gold stated to be in London. His Majesty's Government replied that they were precluded from taking any steps to prevent such a transfer because, firstly, the administration of the Bank for International Settlements was not a matter under the control of His Majesty's Government; and, secondly, that the immunities granted to the Bank for International Settlements by the international Agreement of January, 1930, and the Protocol of July, 1936, would have precluded restricting the transfer of the gold in London even if this had been otherwise possible.

The misconceptions inherent in the suggestion that action could and should have been taken by His Majesty's Government to prevent the transfer of this gold stated to be deposited with the Bank of England were dealt with in another place by my right honourable friend the Chancellor of the Exchequer on June 5. He then explained the position of the Bank of England in a matter of this kind and added that he had sought the advice of the Law Officers on the principal points and that the statement which he was about to make was in accordance with their advice. He went on to say that His Majesty's Government are precluded by the terms of the Protocols of 1930 and 1936 from taking any steps, by way of legislation or otherwise, to prevent the Bank of England from obeying the instructions given to it by its customer the Bank for International Settlements to transfer gold as it may be instructed; the Czecho-Slovakia (Restrictions on Banking Accounts, etc.) Act, 1939, does not operate to prohibit the Bank of England from making such a transfer without the consent of the Treasury. Even if it did, it would be a breach of treaty obligations to withhold Treasury consent.

7.10 p.m.

LORD STRABOLGI

My Lords, I am much obliged to the noble Lord, Lord Wardington, for intervening in this debate, and I should like to thank him 'for his advice and information which, coming from such a source, naturally carry the very greatest weight. I must say, howeevr, I should have thought that his arguments about the Czech credits held in the Bank of England would have applied also to the credits frozen in London by order of the Government. They also were private deposits which the private banks, on executive Government action, were forbidden to release to their customers—and that with the support of all Parties in the House. The noble Lord's ethical arguments about the high principles of banking surely apply just as much to those deposits.

LORD WARDINGTON

If there is legal authority to withhold balances, that puts the matter on quite a different footing.

LORD STRABOLGI

It was done in the first case by executive action on the part of the Treasury, and of course the banks naturally paid attention when they were told there would be an indemnifying Act. But one would have thought the morality would have been the same in both cases.

THE LORD CHANCELLOR (LORD MAUGHAM)

If the noble Lord will forgive me, having been concerned in the matter of the Russian banks, I may say that the circumstances were far more difficult because the moneys were deposited in the sort of case he is mentioning by Russian banks which no longer existed.

LORD STRABOLGI

I was talking of Czech money.

THE LORD CHANCELLOR

If the noble Lord is now dealing with another matter I beg his pardon.

LORD STRABOLGI

I am much obliged to the noble and learned Lord. I only referred to the Czech balances held in private banks in London, which were held up at the request of the Government and are still so held.

LORD WARDINGTON

I see no objection whatever in that action of His Majesty's Government and no difficulty in accepting the instructions of His Majesty's Government in a case of that sort. What I criticised was the suggestion that His Majesty's Government should interfere with the Bank for International Settlements.

LORD STRABOLGI

There is admittedly a distinction in this case, and that brings me to the Government reply to my Question. I am much obliged to the noble Lord, Lord Templemore, for his very full reply, but there is something missing. Supposing there had actually been war between this country and Germany—and the Prime Minister himself said we are not in a state of peace; we are neither one thing nor another—would it still be maintained by the Government that they were bound to allow this gold to leave this country because of the Statutes of 1930 which were never carried out by Germany? That shows the absurdity of the whole thing, if I may be allowed to use the expression. I do not want to enter into the niceties of the ethics of banking and International Law, especially in the presence of its great guardian, the present Lord Chancellor; but if it hail been desired to prevent this money from reaching its purloiners, I am sure means could have been found to do so. That is the feeling of the Englishman in the street, and that is what matters. However in the circumstances, I do not propose to press my Motion.

Motion for Papers, by leave, withdrawn.